Certain techniques retailers have long used to persuade their customers that they offer good value—frequent discounts, two-for-one deals, and other promotions—have limited effectiveness in Latin America. Far more important are factors that have also come to the fore in developed markets: the price of products that shoppers buy regularly, for example, and whether a store has a broad range of goods at different price and quality levels in key categories.

These findings emerged from a survey of more than 3,000 shoppers in and around Bogotá (Colombia), Buenos Aires (Argentina), Mexico City (Mexico), Santiago (Chile), and São Paulo (Brazil). Each city’s sample—600 to 700 people—matched the socioeconomic composition of its country’s overall population. One key component of the survey was our effort to get shoppers to identify, from among a wide range of tactics¹ that retailers use to influence price perceptions, which tactics the shopper’s primary store employed. We then used regression analysis to understand the impact of various tactics on the consumer’s perception of stores as inexpensive, very expensive, or somewhere in between. This analysis allowed us to examine the relationship between each tactic and price perceptions (Exhibit 1).

Everyday prices for a surprisingly small number of items—slightly fewer than four, on average (Exhibit 2)—accounted for half of the information that consumers used to reach their conclusions about a store’s price level. In Buenos Aires the most frequently mentioned item was a one-kilogram (about 2.2 pounds) package of Ledesma sugar; in Bogotá it was a one-liter (about 1.8 pints) bottle of soybean oil. Of course, different products served as yardsticks for different types of consumers. Lower-income shoppers in Mexico City most frequently mentioned a one-liter bottle of cooking oil; wealthier consumers focused on Ariel detergent. Shoppers across the five markets highlighted a core group of about 150 items in all. Stores that overcharge their customers for these goods risk sending a broad message that they are more expensive than their rivals.

The second most important factor shaping consumer perceptions was the range of goods, in categories extending beyond these core products, that a retailer offered at different price and quality levels. High-end product offerings didn’t cause consumers to perceive stores as high priced, so long as they also sold lower-quality, lower-priced alternatives. In particular, shoppers expected to find low-priced choices for everyday basics (such as laundry soap and rice) and cited private-label goods for their attractive combination of price and quality. Overall, the ability of a store to assemble the right range of products and prices accounted for nearly one-quarter of the shoppers’ price perceptions about it.

By contrast, the frequency and size of its discounts and other promotions accounted for just 8 percent of these price perceptions. In none of the five markets we studied was there a statistically meaningful relationship between the intensity of promotional activity and consumer perceptions of the competitiveness of stores on price.

In addition to the general inefficacy of promotions, our research showed that two markets—Buenos Aires and São Paulo—had dramatically higher levels of promotional activity than the other three (Exhibit 3). While we don’t know what factors accounted for these differences, our experience suggests that the more intense the promotional activity in a given market, the more difficulty retailers may have in escaping its established patterns, such as alternating between high prices for a product one week and low prices the next. The benefits of breaking such cycles can be far reaching: by eliminating promotions, one Latin American retailer we studied reduced its warehouse overstocks, often an unintended consequence of prepromotional stock-building, by 60 percent.

Such results won’t come as a shock to retailers in developed markets, where merchandising strategies that emphasize periodic promotions are becoming less and less effective. Some successful retailers take a different approach: Tesco, for instance, offers “good,” “better,” and “best” options across a wide variety of products. Although average income levels in Latin America are lower than those in developed markets, the fact that the region’s shoppers are relatively unswayed by price promotions suggests that retailers there might benefit from adopting similar techniques.

Still, it’s important to be realistic about the difficulty of escaping the promotional trap. Despite their limited impact on overall price perceptions, promotions do stimulate short-term sales—particularly in Latin America, where past inflationary experiences instilled in many consumers a desire to stock up when prices are low. Retailers who fear the revenue impact of discontinuing promotions altogether should, as a first step, assess the sales and profit impact of their current promotions. Since the differences often are profound, such analysis can at least highlight opportunities to minimize the damage by eliminating the promotions that are causing the biggest losses.